Monitoring Financial Risk of External Awards

Monitoring Financial Risk of External Awards

In order to minimize potential U-M financial liabilities, monitoring the financial health of sponsored research, including reviewing all project activity in a timely manner and ensuring investigators are kept up-to-date on the overall financial health of their projects, are essential fiscal responsibilities.

Projects with expenses that significantly exceed the amount of revenue received, delinquent payments, or outstanding invoices, pose a higher risk for uncompensated work.  Key factors to consider when evaluating the financial health of a project, and the risks associated in fulfilling the aims and scope of a project, include the following simple questions:

• Are you monitoring revenue received against expenses to ensure correct pacing of expenses?
• Do project expenditures, to-date, significantly exceed revenue received?
• Are invoices current and paid in full?

On a monthly basis, faculty and administrators can minimize risk by consistently reviewing and monitoring the following:

Project revenue status (‘actuals’ balance)

• Projects with expenses that significantly exceed revenue received pose a higher risk for uncompensated work.
• Monitor by reviewing the ‘actual’ balance reported for the project which reflects payments received less expenses charged, or amount of funding received or invoiced for to-date for the work that has transpired.
• Use:
  •  M-Reports [FIN. MGMT or RESEARCH tab]: Budget Status (Project/Grant or Parent Summary) Reports review the Revenue/Expense Balance as of last month closed column
  •  MPathways Financials & Physical Resources System  [GL Reports]: Budget Status (Project/Grant or Parent Summary) Reports review the P/G Actuals Balance on the report   
• Important note: Sponsored project revenue reported reflects both payments received as well as outstanding invoices submitted for payment. Although both reports provide revenue information M-Reports includes additional information regarding the amount of revenue that is billed (Outstanding Invoices Receivable, see below). Selecting the Outstanding Invoices Receivables dollar amount hyperlink displays the Outstanding Invoices Receivable – Aging Summary & Statement of Receivables Report for the project.

The project invoice status (outstanding receivables amount)

• The project invoice status (outstanding receivables amount)
• Projects with unpaid aging invoices pose a higher risk for uncompensated work.
• Monitor revenue for sponsored projects, which reflects both payments received to-date as well as invoices submitted for payment to the sponsor. It is important to monitor the status of outstanding invoices to ensure all project revenue is received.
• Use:
  • M-Reports [FIN. MGMT or RESEARCH tab]: Outstanding Receivables Report  This report displays Outstanding Invoices Receivable – Aging Summary & Statement of Receivables Information and can be run at the department ID or individual project grant level (individual project grant information is the same information accessed by selecting the Outstanding Invoices Receivables dollar amount hyperlink in the Project Grant Summary Reports)
  • UM Data Warehouse  (Business Objects) [Public Folders / U-M Maintained / Financials]: AR01 AcctsRec Aging Detail by Project Grant This report is run at the individual project grant level
• Important note: inactivated project grants may have outstanding receivables due. It is important to continue to monitor invoice status for projects until ALL revenue is received.

Adherence to Payment Terms

• Projects with delinquent payments or partial payments pose a higher risk for uncompensated work.  
• For sponsored projects receiving automatic payments according to a predetermined payment rate and schedule specified in the award document make sure the sponsor is current with all payment terms.
• Use:
  • eRPM:  Review the terms and conditions of each agreement
    • Best Practice: Use the Award Record Manage-Unit Defined Terms and Conditions Activity to document payment terms and other important information related to the award. Information added is easily accessible on the Unit Info tab of the Award Workspace.

The important take away is to actively monitor revenue, billing and payments to allow early identification of potential financial distress that may pose a liability to UM. It is equally important to evaluate the financial health of each project in relation to the work remaining, paying particular attention to those agreements that have specific required deliverables. For projects that are higher risk, proactively engage department leadership – especially if the sponsor becomes delinquent in payments, issues only partial payments, or becomes non-responsive

Upon review, if the PI or department determines the best course of action may be discontinuing project activity contact the ORSP Project Representative for guidance to ensure all contractual obligations are handled appropriately.  In most agreements discontinuation of work requires notification to the sponsor. Likewise, if a sponsor issues a stop work order or study suspension notification this information should be communicated to ORSP immediately.

Additional information on these topics and expectations related to post-award management can be found in the Post-Award Procedures Manual.

Questions? Contact msgrants@umich.edu.